Emissions Trading / Carbon Market News (09/01/2023)

Dear Madam or Sir,

In its annual review, the German Federal Environment Agency (UBA) took a positive stock of the Emissions Trading Scheme (ETS) in such a special year as 2022. One can be reasonably astonished about this, considering that after the start of the Russian invasion of Ukraine, the carbon price crashed towards the 50-euro mark and strong interventions up to the suspension of the ETS were required by certain circles. As the BMU summed up, German auction revenues from European emissions trading alone amounted to more than 6.8 billion euros last year, a significant plus compared to the 5.3 billion euros in 2021.

At around 6.4 billion euros, sales proceeds from the national emissions trading system (nEHS) for heat and transport were down on the previous year (7.2 billion euros in 2021). According to the BMU, this was unfortunately not due to falling emissions in the transport and buildings sectors, but rather to the legislature’s decision to postpone the price increase to 35 euros, originally planned for 2023, by one year. This means that certificates will cost a uniform 30 euros in 2022 and 2023. Some companies have therefore postponed the purchase of their certificates until 2023. The 2022 emissions can also be settled with 2023 certificates. Cumulatively, however, the total revenue of both systems, at more than 13 billion euros, was still slightly above the 2021 result.

Dirk Messner, President of UBA, emphasised in the report that carbon pricing through emissions trading is a decisive lever for achieving the climate goals, as it provides a significant impetus for the climate-friendly transformation of our society. The revenues from the EU-ETS and the nEHS flow entirely into the Climate and Transformation Fund (KTF). This special fund is currently used to support programmes such as federal financial support in the building sector, the further development of electromobility including the expansion of the charging infrastructure, the development of the hydrogen industry or the promotion of energy efficiency. The abolition of the EEG levy is also financed from the KTF, which has contributed to a reduction in electricity costs in the past year.

The report also makes clear that in 2022, at around 85 million, much less emission allowances were auctioned for Germany at the European Energy Exchange (EEX) in Leipzig than in the previous year (2021: 101 million). At the same time, however, the price of emission allowances rose significantly: On average, EUAs were significantly higher than the previous year at 80.32 euros (2021: 52.50 euros). Compared to 2020 (24.61 euros), the average revenue has even more than tripled. On 19 August 2022, the highest price at a German auction since the introduction of the ETS was achieved at 96.87 euros.

Jürgen Landgrebe, head of the department “Climate Protection, Energy, German Emissions Trading Authority” at the Federal Environment Agency also drew a positive conclusion: “The strong price increases are largely due to the European reform process intensified last year to raise the ambition level in the EU ETS for the period until 2030. Market participants recognise that the political framework conditions are being geared towards more climate protection. This creates the necessary economic incentives for investments in climate-friendly technologies and production methods. The price development of the past year can thus also be seen as a vote of confidence by market players in the ability of European climate policy to be reformed”.

The new year started with exceptionally high temperatures. In addition, efforts to move away from Russian energy sources have been successful and gas storage facilities are largely well filled. This had a significant impact on the energy markets. The European gas price, for example, continued its correction in the first trading days of the new year. On Wednesday, the TTF futures contract for Dutch natural gas traded at around 67 euros per megawatt hour for some time. This is the lowest quotation since February 2022, before the start of the war in Ukraine. The carbon price was unable to avoid the pull of the indices and broke through important support lines on its downward slide. The December benchmark contract fell by around 8 per cent on a weekly basis.

Auctions on the EEX start today, Monday. As the carbon price consolidated at a low level in thin trading on Friday, it will be interesting to see how the auctions are absorbed after the winter break.

  (Average Quotes Exchange / OTC)   
EUA (Spot-Market)83.51 EUR75,86 EUR-7,65 EUR
EUA (December-2023-Future)83.97 EUR77,39 EUR-6,58 EUR
VCU (Voluntary Carbon Units ø)4.60 USD3,50 USD-1,10 USD
VER (Gold Standard Spotmarkt ø)3.84 USD2,98 USD-0,86 USD
nEZ (German National Carbon Units)30.00 EUR30,00 EUR+0,00 EUR
ICE Brent Crude Oil (Benchmark Future)83.02 USD78,51 USD-4,51 USD
EURO (Currency, Forex)1.0701 USD1,0644 USD+0,0057 USD

(The average exchange quotes and OTC-prices shows the average between bids and ask of several exchanges and OTC markets for carbon emission rights in the ETS. Bid and ask has usually in Spot Market a visible spread. The VER quotes are average rates (carboncredits.com), which can be used within the framework of CORSIA and voluntary carbon offsetting. Crude Oil and Euro Currency shows day-end-exchange quotes. This market information has just an informational character and are no advice or offer to trade carbon emission rights or their futures and options. If you want to unsubscribe, please reply to this mail.)

Please call our international carbon desk if any further questions exist: +49.2831.1348220.

With kind regards,

ADVANTAG Services GmbH